Ikanos is a publicly traded company that develops and markets programmable semiconductors. The semiconductors enable fiber-fast broadband services over telephone companies’ existing copper lines. All of Ikanos’s revenues derive from the sale of semiconductor chip sets. Several months prior to its offering of stock to the public, Ikanos learned that there were quality issues with the chips. In the weeks leading up to the offering, the defect issues became more pronounced.

The registration statement simply cautioned in generalized terms that “[h]ighly complex products such as those that [Ikanos] offer[s] frequently contain defects and bugs . . . ” After the offering, Ikanos was forced to recall the chip sets and suffered substantial losses. Panther was an investor in Ikanos and filed suit alleging that Ikanos’s failure to disclose the magnitude of the defect issue in either the registration statement or the prospectus violated Sections 11 and 12(a) (2).

CASE QUESTIONS

1. Should Ikanos have disclosed the chip defect more specifically in its registration statement and prospectus? Why do you think it did not?

2. What is Panther’s likely theory of the case?

3. Is Ikanos’s language related to a caution about defects and bugs sufficient to assert the bespeaks caution doctrine?